SAA is fast becoming a national liability, says IFP

Cape Town - The culture of open ended bailouts by the South African government for troubled national airline South African Airways (SAA) despite no change in SAA's business behaviour is the very reason why this state-owned enterprise (SoE) is collapsing, opposition Inkatha Freedom Party said on Saturday.

"The IFP considers the decision by National Treasury to provide an emergency bailout to South African Airways in an attempt to avoid a default in debt repayments as wrong and purely bad business practice in all material respects.

"The culture of open ended bailouts being provided to SAA in the absence of change in business behaviour is the very reason why this state-owned entity is collapsing," he said.

The IFP believed that National Treasury was ill-advised to continuously in a willy-nilly fashion throw financial solutions to what were essentially non-financial problems at SAA. The fundamental problem at the heart of SAA's woes was a pure lack of leadership and an absence of strategic direction.

SAA had a rogue culture of reckless spending which was a perpetual drain on the national fiscus. The IFP was concerned that the prevailing culture of blank cheques "will be the very bane of SAA", he said.

"The IFP accordingly calls for the disbandment of the current board and the recusal of the current management and for a business rescue intervention process to be set into motion; and among other aspects for this process to begin the rationalisation of routes and institute major cuts in the luxurious spending spree culture at the national carrier where wants currently supersede needs. SAA is a national asset which is fast becoming a national liability," Hlengwa said.

On Friday, the government approved the transfer of R3 billion in funds from the National Revenue Fund (NRF) to SAA to allow the airline to meet its debt obligations to Citibank and avoid a default.

SAA has to meet its repayment obligations on a Citibank loan amounting to R6.8 billion.Citibank demanded R1.8 billion by the end of September. This is happening while SAA wrestles with the prospect of being unable to pay salaries because of a severe cash crunch.

The rest of the NRF sourced funds – R1.2 billion would be given to SAA for working capital cost. CitiBank has cancelled SAA’s R250 million short-term banking facility due to lack of government guarantee, leaving the airline without cash and desperately trying to find local bridging finance.

National Treasury said in a statement that a default by the airline on the R3 billion payment due would have triggered a call on the guarantee exposure totalling R16.4 billion, leading to an outflow from the NRF and possibly resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt.